LERNOULT INVESTMENT FUND, INC.
Statement of Assets and Liabilities
June 30, 1998
(Unaudited)
Assets
Investments, at value (@ cost $572,304,131) $ 592,766,150
Dividends receivable 729,817
Interest receivable 1,284
Deferred Organizational Costs 7,206
Prepaid expenses 4,386
Total Assets 593,508,843
Liabilities
AMPS Dividends Payable 1,305,341
Cash 10
Accrued expenses 227,540
Notes payable 472,500
Accrued interest expense 12,731
Total Liabilities 2,018,122
Net Assets $ 591,490,721
Net assets are represented by:
Series A Auction Market Preferred Stock, $.01 par value
at liquidation preference $100,000 per share, 1,000 shares
authorized, issued and outstanding 75,000,000
Series B Auction Market Preferred Stock, $.01 par value
at liquidation preference $100,000 per share, 1,000 shares
authorized, issued and outstanding 75,000,000
Series C Auction Market Preferred Stock, $.01 par value
at liquidation preference $100,000 per share, 1,000 shares
authorized, issued and outstanding 100,000,000
Common stock at par value, $.01 per share, 199,997,500 shares
authorized, 32,172,007.45 shares issued and outstanding 321,720
Additional paid-in capital 320,706,982
Net unrealized appreciation of investments 20,462,019
Net Assets $ 591,490,721
Net asset value per common shares outstanding $ 10.61
See accompanying notes to the financial statements.
LERNOULT INVESTMENT FUND, INC.
Statement of Operations
For the period from March 24, 1998 (commencement of operatons) to
June 30, 1998
(Unaudited)
Investment income:
Dividend income $ 2,616,966
Interest income 5,970
Total investment income 2,622,936
Expenses:
Administration fees 93,804
Investment management fee 15,634
Broker dealer fee 163,153
Rating agencies fees 18,699
Legal fees 13,030
Interest expense 12,731
Independent auditors 10,098
Insurance 7,438
Directors fees and expenses 4,314
Auction agent fee 6,390
Amortization of Organizational Cost 794
Total expenses 346,085
Net investment income 2,276,851
Net realized and unrealized gains on investments:
Net realized gain on investments:
Proceeds from sales $ 36
Cost of securities sold (35)
1
Unrealized appreciation of investments:
Beginning of period 0
End of period 20,462,019
Increase in net unrealized appreciation of investments 20,462,019
Net increase in net assets resulting
from operations $ 22,738,871
See accompanying notes to the financial statements.
LERNOULT INVESTMENT FUND, INC.
Statement of Changes in Net Assets
For the period from March 24, 1998 (commencement of operatons) to
June 30, 1998
(Unaudited)
For the
period ended
June 30, 1998
(UNAUDITED)
From operations:
Net investment income $ 2,276,851
Net realized loss on investments 1
Net change in unrealized appreciation
on investments 20,462,019
Increase in net assets resulting from operations 22,738,871
Dividends from net investment income:
Auction market preferred stock (2,276,851)
Common stock 0
(2,276,851)
Distributions from net realized gains:
Auction market preferred stock (1)
Common stock 0
(1)
Decrease in net assets resulting from distributions (2,276,852)
to stockholders
Increase (decrease) from capital share transactions:
Issuance of auction market preferred stock 250,000,000
Issuance of common stock 321,720,074
Distribution of capital to preferred stockholder (691,372)
571,028,702
Total increase in net assets 591,490,721
Net assets:
Beginning of period 0
End of period $ 591,490,721
See accompanying notes to the financial statements.
LERNOULT INVESTMENT FUND, INC.
Notes to the Financial Statements (continued)
(Unaudited)
1. Organization and Significant Accounting Policies
The Lernoult Investment Fund, Inc. (the "Fund") is registered
as a diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended. The Fund
commenced investment operations on March 24, 1998.
The Fund's objective is long-term capital appreciation with
income as a secondary objective. The Fund's investments
consist primarily of common stocks of large and medium
capitalization U.S. companies. The Fund's investment
portfolio must conform to certain rating agency asset coverage
tests so long as the Fund has preferred stock outstanding.
On the date of commencement, the Fund issued $250 million of
Auction Market Preferred Stock ("AMPS") and received
securities with an aggregate fair value of $571,720,074.50
from a collective trust fund for employee benefit plans in
exchange for 32,172,007.45 shares of common stock and $250
million in cash.
The following is a summary of significant accounting policies
consistently followed by the Fund in preparation of its
financial statements.
Security Valuation
Investments in securities traded on a national securities
exchange (or reported on the Nasdaq National Market) are
valued at the last reported sales price on the primary
exchange. Temporary investments are valued at amortized cost
which approximates fair value.
Security Transactions
Security transactions are accounted for on a trade date plus
one business day basis which does not differ materially from a
trade date basis. The cost of securities sold is determined
using the identified cost method. Dividend income is recorded
on ex-dividend date and interest income is recorded on the
accrual basis.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment
companies and distribute its taxable income to stockholders.
Therefore, no provision for Federal income tax is required.
Distribution of Income and Gains
The Fund distributes substantially all of its taxable income
in excess of the dividends paid to the preferred stockholders
to the common stockholder. Dividends to the common
stockholder are declared and paid at least annually. Net
capital gains, if any, are generally distributed annually.
1. Organization and Significant Accounting Policies
(continued)
The character of income and gains to be distributed are
determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Amounts
distributed in excess of taxable income and net realized
capital gains, if any, are considered a return of capital.
Use of Estimates
Estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in
the economic environment, financial markets and any other
parameters used in determining these estimates could cause
actual results to differ from these amounts.
Organization Costs
Organization costs have been deferred and are being amortized
by the Fund on a straight-line basis over five years.
2. Related Party Transactions
A collective trust fund for employee benefit plans is the sole
common stockholder of the Fund. Certain officers and
directors of the Fund are affiliated with the common
stockholder. No fees or expenses were paid to the affiliated
officers and directors.
Comerica Bank serves as both custodian and administrator for
the Fund and receives a fee based on a percentage of net
assets outstanding at the end of the fiscal year. An
affiliate of Comerica Bank serves as investment advisor to the
Fund. The annual investment management fee is 0.01% of
average equity investments. The administration and management
fees are calculated and accrued on a monthly basis and
generally paid on a quarterly basis.
3. Investment Transactions
The aggregate cost of securities purchased and the aggregate
proceeds of securities sold excluding short-term securities,
for the period March 24, 1998 (commencement of operation) to
June 30, 1998 were $0 and $36, respectively.
As of June 30, 1998, the aggregate gross unrealized
appreciation and depreciation of investments for Federal
income tax purposes, were $37,318,421 and $16,856,402,
respectively.
4. Auction Market Preferred Stock
The Fund has outstanding at June 30, 1998, 750 shares of
Series A and Series B and 1000 shares of Series C Auction
Market Preferred Stock. The AMPS rates in effect on June 30,
1998 were 4.125%, 4.25% and 4.25% for Series A, Series B and
Series C, respectively.
In March 1998, the Fund issued $250 million of AMPS.
Each series of AMPS is redeemable at the option of the Fund in
whole, but not in part, at a price of $100,000 per share plus
accumulated and unpaid dividends. Dividends are cumulative
from the date of original issue and are paid every 49 days at
a rate set through Dutch Auction. The Fund is subject to
certain asset coverage tests, and the AMPS are subject to
mandatory redemption if the tests are not met.
In addition, the AMPS are subject to mandatory redemption if
the Fund ceases to qualify as a regulated investment company
or if Merrill Lynch, Pierce, Fenner & Smith Incorporated
ceases to be the broker dealer. The liquidation value under
mandatory redemption of the AMPS is $100,000 per share plus
accumulated and unpaid dividends.
5. Notes Payable
As of June 30, 1998, the Fund had $472,500 of principal notes
outstanding to investors. The notes are due on March 24, 2023,
bear interest at a floating rate. The interest rate, which
resets annually, is set at the one-year U.S. Treasury bill
rate plus 3.50%. As of June 30, 1998, the Fund was paying
interest at 10% per annum.
6. Year 2000 (Unaudited)
Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely
affected if the computer systems used by the
advisor/administrator and other service providers do not
properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem". The advisor/administrator is
taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems
that it uses and to obtain reasonable assurances that
comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any
adverse impact to the Fund.
LERNOULT INVESTMENT FUND, INC.
Financial Highlights
(Unaudited)
For the
period ended
June 30, 1998 (1)
For a share of common stock outstanding
throughout the period:
Net asset value, beginning of period 10.00
Net investment income 0.07
Net realized and unrealized gains
on investments 0.63
Total from investment operations 0.70
Capital contribution 0.00
Less distributions from net investment income:
Common stock equivalent of dividends
paid to AMPS holders (0.07)
Dividends paid to common shareholders 0.00
Less distributions from net realized gains:
Common stock equivalent of dividends
paid to AMPS holders 0.00
Distribution paid to common shareholders 0.00
Less distributions from paid-in capital:
Common stock equivalent of dividends
paid to AMPS holders (0.02)
Distribution of capital to common stockholder 0.00
Total distributions (0.09)
Net asset value, end of period $10.61
Total investment return 7.00%(2)
Ratios/supplemental data:
Net assets at end of period (000s) 591,491
Average net assets (000s) 580,671
Ratio of expenses to average net assets
applicable to common stock (4) 0.06%(3)
Ratio of net investment income to average net
assets applicable to common stock (4) 0.39%(3)
Portfolio turnover 0.00%
Average commissions paid on equity
securities transactions (4) $0.0002
Asset coverage per AMPS share
end of period 236,596
AMPS shares outstanding 2,500
Asset coverage for notes payable,
end of period 125183%
Notes payable, end of period $472,500
(1)For the period March 24, 1998 (commencement of operations) to June
1998.
(2)Total investment return for the period; not annualized.
(3)Annualized.
(4)Ratios are calculated on the basis of income and expenses applicable to
both the common and preferred stock relative to the average net assets
of the common stockholder. Ratios do not reflect the effect of
dividend payments to AMPS holders.
See accompanying notes to financial statements.
LERNOULT INVESTMENT FUND, INC.
Portfolio of Investments
June 30, 1998
(Unaudited)
No. of
Shares Market Value
COMMON STOCK
BUILDING AND CONSTRUCTION 1.41%
BUILDING MATERIALS
8,800 GEORGIA PACIFIC CORP 518,650.00
69,100 HOME DEPOT 5,739,618.75
15,600 MASCO CORP 943,800.00
INDUSTRIAL CHEMICALS
16,800 PPG INDUS INC 1,168,650.00
TOTAL BUILDING AND CONSTRUCTION $8,370,718.75
CHEMICALS AND DRUGS 15.68%
CHEMICALS
21,400 DOW CHEMICAL CO 2,069,112.50
107,000 DUPONT DENEMOURS & CO 7,984,875.00
7,400 EASTMAN CHEMICAL 460,650.00
DRUGS
144,600 ABBOT LABS 5,910,525.00
8,100 ALZA CORP CL A 350,325.00
122,800 AMERICAN HOME PRODUCTS 6,354,900.00
94,000 BRISTOL MYERS SQUIBB CO 10,804,125.00
104,900 LILLY ELI & CO 6,929,956.25
113,300 MERCK & CO., INC 15,153,875.00
122,200 PFIZER INC 13,281,612.50
48,000 PHARMACIA & UPJOHN INC 2,214,000.00
69,200 SCHERING PLOUGH 6,340,450.00
77,100 WARNER-LAMBERT 5,348,812.50
COSMETICS
12,500 AVON PRODUCTS INC 968,750.00
10,300 INTL FLAVORS & FRAGRANCES 447,406.25
HEALTH PRODUCTS/CARE
26,500 BAXTER INTL INC. 1,426,031.25
105,800 GILLETTE CO 5,997,537.50
28,900 TENET HEALTHCARE CORP 903,125.00
TOTAL CHEMICALS AND DRUGS $92,946,068.75
CONSUMER PRODUCTS 13.60%
CONFECTIONS AND BEVERAGES
46,300 ANHEUSER-BUSCH COS 2,184,781.25
233,800 COCA COLA CO 19,989,900.00
143,400 PEPSICO INC 5,906,287.50
PACKAGED FOOD
43,100 CAMPBELL SOUP CO 2,289,687.50
44,900 CONAGRA 1,422,768.75
34,500 HEINZ H J CO 1,936,312.50
38,800 KELLOGG CO 1,457,425.00
229,200 PHILLIP MORRIS CO INC 9,024,750.00
13,100 QUAKER OATS CO 719,681.25
44,700 SARA LEE CORP 2,500,406.25
4,310 VLASIC FOODS INTL 86,738.75
PAPER
28,600 INTERNATIONAL PAPER CO 1,229,800.00
52,500 KIMBERLY CLARK CORP 2,408,437.50
18,900 WEYERHAEUSER CO 872,943.75
PRINTING AND PUBLISHING
26,800 GANNETT CO., INC 1,904,475.00
9,400 MCGRAW-HILL COMPANIES INC 766,687.50
54,700 TIME WARNER INC 4,673,431.25
OTHER CONSUMER PRODUCTS
28,000 COLGATE PALMOLIVE CO 2,464,000.00
38,600 MINNESOTA MNG & MFR 3,172,437.50
126,900 PROCTER & GAMBLE CO 11,555,831.25
17,400 UST INC 469,800.00
PHOTOGRAPHY
30,700 EASTMAN KODAK CO. 2,243,018.75
APPAREL
27,500 NIKE INC CL B 1,338,906.25
TOTAL CONSUMER PRODUCTS $80,618,507.50
DURABLE GOODS 20.21%
AEROSPACE-AIRCRAFT
94,500 BOEING CO 4,211,156.25
18,400 LOCKHEED MARTIN CORP 1,948,100.00
15,500 TEXTRON INC 1,111,156.25
22,000 UNITED TECHNOLOGIES CORP 2,035,000.00
AGRICULTURAL MACHINERY
35,200 CATERPILLAR INC 1,861,200.00
23,600 DEERE & CO 1,247,850.00
AUTOMOBILE AND PARTS
61,300 CHRYSLER CORP 3,455,787.50
113,400 FORD MTR CO 6,690,600.00
66,900 GENERAL MTRS CORP 4,469,756.25
16,900 GENUINE PARTS CO 584,106.25
16,100 TENNECO INC 612,806.25
11,600 TRW INC 633,650.00
ELECTRICAL
20,800 AMP INC 715,000.00
41,900 EMERSON ELEC CO 2,527,093.75
12,000 HONEYWELL INC 1,002,750.00
ELECTRONICS
7,300 EATON CORP 567,575.00
309,300 GENERAL ELECTRIC CO 28,146,300.00
15,000 GENERAL MILLS INC 1,025,625.00
154,600 INTEL CORP 11,459,725.00
56,400 MOTOROLA INC 2,964,525.00
INDUSTRIAL MACHINERY
11,400 COOPER INDUS INC 626,287.50
OFFICE EQUIPMENT AND SUPPLIES
91,900 IBM COMMON 10,551,268.75
27,400 PITNEY BOWES INC 1,318,625.00
30,800 XEROX CORP. 3,130,050.00
RUBBER
14,800 GOODYEAR TIRE & RUBBER 953,675.00
OTHER DURABLE GOODS
53,300 ALLIED-SIGNAL INC 2,365,187.50
21,800 CORNING INCORPORATED 757,550.00
COMPUTERS AND SOFTWARE
28,300 AUTOMATIC DATA PROC 2,062,362.50
143,100 COMPAQ COMPUTER CORP 4,060,462.50
98,300 HEWLETT PACKARD CO 5,885,712.50
20,200 UNISYS CORP 570,650.00
TELECOMMUNICATIONS
123,000 LUCENT TECHNOLOGIES INC 10,232,062.50
TOTAL DURABLE GOODS $119,783,656.25
FINANCIAL 21.11%
BANKS
61,000 BANC ONE CORP 3,404,562.50
35,600 BANK NEW YORK INC 2,160,475.00
65,500 BANKAMERICA CORP 5,661,656.25
27,400 BANKBOSTON CORPORATION 1,524,125.00
9,300 BANKERS TR NY CORP 1,079,381.25
79,600 CHASE MANHATTAN CORP NEW 6,009,800.00
43,200 CITICORP 6,447,600.00
27,500 FIRST CHICAGO NBD CORP 2,437,187.50
91,394 FIRST UNION CORP 5,323,700.50
25,800 FLEET FINANCIAL GROUP INC 2,154,300.00
18,100 HUNTINGTON BANCSHARES INC 606,350.00
41,500 KEYCORP 1,478,437.50
47,400 MBNA CORP 1,564,200.00
24,100 MELLON BANK CORP 1,677,962.50
16,800 MORGAN J P & CO 1,967,700.00
20,000 NATIONAL CITY CORP 1,420,000.00
88,900 NATIONSBANK CORP 6,800,850.00
71,400 NORWEST CORP 2,668,575.00
19,900 SUNTRUST BANKS INC 1,618,118.75
69,600 U.S. BANCORP 2,992,800.00
19,500 WACHOVIA CORP 1,647,750.00
36,450 WASHINGTON MUTUAL INC 1,583,296.88
8,200 WELLS FARGO & CO 3,025,800.00
FINANCE COMPANIES
43,900 AMERICAN EXPRESS CO 5,004,600.00
29,720 ASSOCIATES FIRST CAPITAL 2,284,725.00
65,700 FED HOME LN MTG CORP 3,092,006.25
100,300 FEDERAL NATL MTGE ASSN 6,093,225.00
30,300 HOUSEHOLD INTL CORP 1,507,425.00
56,000 MORGAN ST DE WTR DISC 5,117,000.00
28,800 PNC FINANCIAL 1,549,800.00
FIRE AND CASUALTY INSURANCE
16,100 CHUBB CORP 1,294,037.50
7,400 GENERAL RE CORP 1,875,900.00
13,300 SAFECO CORP 604,318.75
INSURANCE
40,500 ALLSTATE CORP. 3,708,281.25
66,300 AMERICAN INTL GROUP 9,679,800.00
15,900 AON CORP 1,116,975.00
21,000 CIGNA CORP 1,449,000.00
11,200 HARTFORD FINANCIAL SVCS 1,281,000.00
24,150 MARSH & MCLENNAN CO. 1,459,565.63
15,800 ST PAUL COS INC 664,587.50
108,400 TRAVELERS INC. 6,571,750.00
LIFE INSURANCE
24,000 AMERICAN GENERAL CORP 1,708,500.00
9,700 LINCOLN NATL CORP IND 886,337.50
BROKERAGE
31,500 MERRILL LYNCH & CO 2,905,875.00
TOTAL FINANCIAL $125,109,338.01
METALS AND MINING 0.23%
ALUMINUM
16,300 ALUMINUM CO AMER 1,074,781.25
OTHER METALS
18,300 FREEPORT-MCMORAN COPPER-B 277,931.25
TOTAL METALS AND MINING $1,352,712.50
OIL-ENERGY 7.13%
OIL & GAS PRODUCERS
92,000 AMOCO CORP 3,829,500.00
32,000 OCCIDENTAL PETROLEUM 864,000.00
27,300 USX-MARTHON GROUP COM NEW 936,731.25
NATURAL RESOURCES
30,200 WILLIAMS COS INC-DEL 1,019,250.00
OIL - DOMESTIC
24,900 PHILLIPS PETE CO 1,199,868.75
23,300 UNOCAL CORP 832,975.00
OIL - INTERNATIONAL
30,300 ATLANTIC RICHFIELD CO 2,367,187.50
62,100 CHEVRON CORP 5,158,181.25
233,100 EXXON CORP. 16,622,943.75
74,100 MOBIL CORP 5,677,912.50
51,800 TEXACO INC 3,091,812.50
MISCELLANEOUS
21,800 FIRSTENERGY CORP 670,350.00
TOTAL OIL-ENERGY $42,270,712.50
RETAIL 3.78%
DEPARTMENT STORES
41,400 DAYTON HUDSON CORP 2,007,900.00
46,100 K MART 887,425.00
21,900 MAY DEPT STORES CO 1,434,450.00
23,600 PENNEY JC INC 1,706,575.00
37,100 SEARS ROEBUCK & CO 2,265,418.75
GROCERY
23,200 ALBERTSON'S INC 1,202,050.00
OTHER RETAIL
212,300 WAL MART STORES INC 12,897,225.00
TOTAL RETAIL $22,401,043.75
UTILITIES 10.31%
ELECTRIC
17,900 AMERICAN ELEC PWR INC 812,212.50
14,000 BALTIMORE GAS & ELEC 434,875.00
14,200 CAROLINA PWR & LT CO 615,925.00
20,100 CENTRAL & SOUTH WEST CORP 540,187.50
14,900 CINERGY CORP 521,500.00
22,200 CONSOLIDATED EDISON INC 1,022,587.50
18,300 DOMINION RES INC-VA 745,725.00
13,700 DTE ENERGY CO 553,137.50
34,000 DUKE POWER CO 2,014,500.00
36,100 EDISON INTERNATIONAL 1,067,206.25
23,100 ENTERGY CORP NEW 664,125.00
17,200 FPL GROUP INC 1,083,600.00
12,000 GPU INC 453,750.00
26,700 HOUSTON INDS INC 824,362.50
13,700 NIAGARA MOHAWK PWR 204,643.75
14,000 NORTHERN STS PWR CO 400,750.00
15,700 P P & L RESOURCES INC 356,193.75
28,000 PACIFICORP 633,500.00
21,000 PECO ENERGY CO 612,937.50
41,400 PG&E CORP 1,306,687.50
21,900 PUBLIC SVC ENTERPRISE GRP 754,181.25
65,200 SOUTHERN CO 1,805,225.00
20,500 UNICOM CORPORATION 718,781.25
GAS
9,000 CONSOLIDATED NATL GAS 529,875.00
23,300 TEXAS UTILITIES CO 969,862.50
TELEPHONE
153,500 A T & T 8,768,687.50
17,400 ALLTEL CORP 809,100.00
103,500 AMERITECH CORP NEW 4,644,562.50
146,800 BELL ATLANTIC CORP 6,697,750.00
93,700 BELLSOUTH CORP 6,289,612.50
29,400 ENRON CORP 1,589,437.50
15,500 FRONTIER CORP 488,250.00
90,500 GTE CORP 5,034,062.50
40,600 SPRINT CORP 2,862,300.00
45,700 US WEST INC (NEW) 2,147,900.00
WASTE DESPOSAL
18,300 BROWNING FERRIS IND 635,925.00
43,000 WASTE MANAGEMENT INC 1,505,000.00
TOTAL UTILITIES $61,118,918.75
MISCELLANEOUS 6.45%
BROADCAST/COMMUNICATIONS
67,200 CBS CORP 2,133,600.00
63,800 DISNEY WALT CO 6,702,987.50
BUSINESS SERVICES
76,600 CENDANT CORP 1,599,025.00
16,100 DUN & BRADSTREET 581,612.50
FOOD SERVICE
65,100 MCDONALDS CORP 4,491,900.00
MED SERV & SUPPLIES
15,500 HUMANA INC 483,406.25
TRANSPORTATION
17,200 AMR CORP 1,431,900.00
14,800 BURLINGTON NRTHN SANTA FE 1,453,175.00
20,600 CSX CORP 937,300.00
35,600 NORFOLK SOUTHERN CORP 1,061,325.00
23,400 UNION PACIFIC CORP 1,032,525.00
MISCELLANEOUS
127,100 JOHNSON & JOHNSON 9,373,625.00
TELECOMMUNICATIONS
173,200 SBC COMMUNICATIONS INC 6,928,000.00
TOTAL MISCELLANEOUS $38,210,381.25
TOTAL COMMON STOCK $592,182,058.01
OTHER
0.10%
CASH EQUIVALENTS
584,092 AIM SHORT TERM INV SER 2 584,091.86
TOTAL $584,091.86
TOTAL OTHER $584,091.86
TOTAL INVESTMENTS - 100.00% $592,766,149.87
(cost $572,304,131)
See accompanying notes
